Money Moves: Big Law Firms Make Big Investments Into Top Legal Talent
With superstar rainmaker poaching on the rise, clients of Big Law firms must adapt so as to not be left holding the bag for the new normal where “money and data rule” at their law firms.
Over at Law.com, Christine Simmons sits down with elite legal recruiter Mark Rosen, where he talks about the poaching of a top M&A rainmaker and his team from Cleary Gottlieb Steen & Hamilton.
Over the last year, our team has recognized a shift in partner compensation structures, leading to massive payouts to the biggest players at the highest level of Big Law. This trend undergirds a number of other forces driving massive increases in billing rates for premium legal talent. The Wall Street Journal described this phenomenon citing Bodhala data in a groundbreaking deep-dive article earlier this year. Get that story here.
In late October, several sources described the departure of Cleary’s Ethan Klingsberg and his $30 million book of business.
According to Bloomberg, Klingsberg’s work included leading XL Group’s $15.2 billion purchase by Axa, Staples on its $6.2 billion sale to Sycamore Partners, and Google’s $2.9 billion sale of Motorola Mobility to Lenovo in 2014.
Along with him, his new firm, London-based Freshfields Bruckhaus Deringer, picked up a team in a direct move to boost M&A business, hiring on corporate lawyers Pamela Marcogliese and Paul Tiger, and litigator Meredith Kotler.
The new compensation plans will guarantee massive rewards for the team.
“Klingsberg, the rainmaker leading the group move from Cleary, will be much better rewarded at his new firm. He said Klingsberg is guaranteed $10 million a year for at least five years at Freshfields, after making “a little more than $3 million” at Cleary. The other partners moving to Freshfields also got “substantial increases.”
Most notable is what seems to be driving the move. Rosen said he believes Cleary’s “unsustainable” lockstep compensation failed to compete with Freshfields’ desire to pay top dollar for top talent. Per Rosen:
“It’s not a fair system. I don’t believe you can compensate an attorney who is responsible for $40 million worth of business the same way you can compensate someone with $4 million in business. Five years from now or even sooner, I don’t think there will be any pure lockstep firms left.”
Our team recognized immediately that this validated what our data and analysis has been telling us. Today, white-shoe firms are creating new lateral tracks to attract the biggest players — and their Rolodexes. This change has led to massive yearly increases in law firm rates across all levels of experience.
The fact is, partners have no loyalty to the lockstep system anymore. We’re finding that elite lawyers expect to get in the range of one-third of their book in annual guaranteed comp, or more.
This trend has intensified as competition for blue-chip clients heats up. For example, Kleinberg’s move potentially puts the M&A portfolios of elite clients such as Google, AXA, Verizon, Goldman Sachs, Lowe’s, Walgreens Boots Alliance, Square, Stanley Black & Decker, Tiffany & Co., and American Express at play.
What does this mean for purchasers of Big Law talent? Superstars, whose advice is truly gold-plated, will be rewarded handsomely. However, because of the Nobel-Prize winning concept called the “winner’s curse” in economics, firms will inevitably overpay for the few partners out there that have more than a $25 million book. This market incongruity will lead to unjustifiably higher rates passed on to their corporate clients in order to finance the move of the same partner from Firm A to Firm B.
This trend will continue, and the focus on money and data will continue to grow.
Bodhala clients strongly believe that they should not pay more for the same partner who has moved from Firm A to Firm B. We arm your inside legal departments with the tools they need to guard against unwarranted rate hikes. Your data, powered by our machine learning algorithms, can help you understand, predict, and guard against overpaying for premium work.
Our team is eager to work with corporate legal departments to help explain this trend, and how forward-thinking general counsels can navigate through this “new normal.” Our proprietary database, paired with our one-of-a-kind machine learning algorithms, puts you back in the driver’s seat. Our team gives you data-backed learnings about your spend so you can have a deeper understanding of how you can maximize your value while utilizing the best talent for your needs.
Using our vast proprietary legal data platform powered by our cutting edge machine learning algorithms, we can help our clients — corporate legal departments — understand exactly how and why their rates go up each year. Using billing data you already own, we provide:
- Legal spend transparency through data cleansing and rate card discount normalization to allow comparison,
- Reporting granularity, based on information from your own data,
- Rate benchmarking, creating a true price market,
- Guided counsel identification, and selection.
- Fit of work: Bodhala recognizes that there is a time when you need the premium firm. Our platform can help you identify those times, and separate them out from when you don’t.
No matter what form a law firm’s partnership track takes, or whatever shifts in the market take place, we know the only true metric is what you can find in the data.
We’re eager to help you understand this new trend. Contact us today to learn more.